QROPS Briefing

1 Q u a l i f y i n g R e c o g n i s e d O v e r s e a s P e n s i o n S c h e m e s

F O R I N T E R N A L U S E O N L Y

Qualifying Recognised Overseas Pension Schemes BRIEFING NOTE

(Last updated: October 2009)

Qualifying Recognised Overseas Pensions (QROPS) Introduction Page 1 Planning Opportunities Page 2 Guernsey Page 4 Profile Of Close Page 5 The Close Guernsey Personal Retirement Plan Page 5 Fees and Partner Remuneration Page 7 Training and accreditation Page 7 Advice Process Page 8 Marketing Materials Page 8 Appendices:

1: QROPS Technical Summary Page 9 2: Guernsey Pensions - Technical Summary Page 13 3: Advice Guidance and Flowchart Page 17 4: Processes and Procedures Page 36 5: Client Identification and Address Verification Report Page 39 6: Advice Form Page 42 7: Questions and Answers Page 43

Introduction We are pleased to announce the availability of a Qualifying Recognised Overseas Pensions Scheme (QROPS) based in Guernsey. The product, the Close Guernsey Personal Retirement Plan, will be provided by Close Trustees Guernsey Limited, who specialise in trust and pension administration. Clients will, however, be able to invest in a range of SJP investments. QROPS provide clients who have left the UK, or are planning to leave imminently, with the potential to achieve significant tax savings, together with a series of practical advantages, and will allow Partners to maintain their relationship with existing clients who are moving overseas, while also providing the opportunity to attract new clients. A QROPS is likely to be of interest to clients who have already left the UK, or plan to do in the next 12 months, with the intention of settling in a new country of residence, as it provides the following advantages:



Qualifying Recognised Overseas Pension Schemes

BRIEFING NOTE

In addition to this briefing note, you can also participate in a telephone conference which has been arranged for 18 June which will discuss the planning opportunities in greater detail.

Planning Opportunities While QROPS will be beneficial to many clients who have, or will, become non-UK resident in retirement, it should not be seen as a universal solution. Whether to recommend that a client transfer their UK Registered Pension to a QROPS will be determined by a combination of factors including, the potential tax savings which can be achieved, the practical benefits that are provided, the investment opportunities available and their chosen country of residence. These are discussed further in the advice guidance (attached as Appendix 3). On those occasions where a QROPS is appropriate, there are considerable planning opportunities, these are discussed below.

• Income will be paid gross

• Benefits can be paid in a currency other than sterling.

• The fund may be invested in a range of SJP investment products which benefit from the SJP Approach to Investment Management

• On death before age 75, any crystallised element of a scheme avoids the 35% tax

charge applied to UK Registered Pension Schemes

• On death after age 75, any remaining funds can be distributed without incurring Unauthorised Payments Charges (provided the member has been non-UK resident for five complete tax years), totalling 70%, with the excess being subject to IHT. This can result in overall tax saving of 82%.




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Taxation of lump sum death benefits One of the key benefits provided by a QROPS is the tax treatment that is applied to lump sum death benefits. This is best illustrated by the comparison contained in the table below:

UK Registered

Pension Scheme QROPS

Potential saving

Member dies prior to vesting 100% of fund value available for distribution Neutral

Member dies post vesting but prior to age 75 (irrespective of residence)

65% of the fund available for distribution

100% of fund value available for distribution

35%

Member dies post 75 while UK resident or having been resident at any

point in the previous five tax years

45% of the fund available for distribution

27%

Member dies post 75 while non- UK resident nor having been resident in the

previous five tax years

18% of the fund available for distribution 100% of fund value

available for distribution

82%

The above table simply compares the tax position (on a worse case basis) in the UK. It is important to note that local taxes may apply in the client’s country of residence. Further details are contained in Appendices 1 and 2. Flexibility of income options Like many forms of personal pensions, members of a QROPS administered in Guernsey are not required to purchase a traditional annuity, irrespective of their age. This can provide significant flexibility and enables any remaining fund to be passed to the nominated beneficiaries. In addition, where the member has been non-resident for five complete tax years, the level of income that can be taken post age 75 can be higher than permitted by a UK registered pension as it is not limited to 90% of GAD. Practical benefits For many clients, when structuring their finances, it is important to ensure that the currency in which they take benefits matches their currency of expenditure. QROPS provides the option of selecting a benefit currency other than sterling. In addition, provided the member is not resident in Guernsey, any income will be paid without deduction of local taxes. Investment Opportunities By providing members with access to a range of SJP investments, they are able to benefit from SJP’s distinctive Approach to Investment Management. This allows existing clients to continue to benefit from the active monitoring of managers, while also appealing to new clients.




BRIEFING NOTE

Areas of planning not permitted There has been much press coverage regarding the use of QROPS as a means of providing a client with 100% of their fund as a lump sum on retirement, provided they have been non-UK resident for five complete tax years. While a small number of providers continue to purport that this is legitimate planning permitted by the legislation, this view is not shared by HMRC and they have taken action where they have identified abuse (for example the removal of QROPS status from all Singapore schemes). For this reason, St. James’s Place does not endorse this activity, and it is not permitted by the Close QROPS.

Guernsey Guernsey enjoys close connections with the United Kingdom, although remains a self-governing dependency of the British Crown. As a result, it enjoys complete autonomy in all matters of internal policy, including taxation and other legal issues. The finance industry makes a significant contribution to the local economy and is closely regulated by the island’s authorities to preserve its reputation for security and financial probity. In addition, it has also contributed to the development of a highly qualified and experienced workforce. The island is both politically and economically stable. It also enjoys a strong financial infrastructure, befitting its position as a leading centre for international finance. Following the removal of QROPS status from all schemes based in Singapore, the Guernsey authorities, in conjunction with the island’s QROPS providers, have worked closely with HMRC to develop a Code of Practice to which all ‘approved’ pensions will, going forward, need to comply. These measures were taken to ensure Guernsey’s position as a leading provider of QROPS, while significantly reducing the potential for QROPS status being removed from any Guernsey scheme.




BRIEFING NOTE

Profile of Close Close Trustees Guernsey Limited are part of the Close Wealth Management Group (the Group) which manages £11.5 billion on behalf of clients and employees 500 people across 9 locations in the UK, Guernsey, Jersey, Isle of Man and South Africa. The Group is ultimately owned by Close Brothers Group plc, which was established in 1878 and is the largest independent British merchant bank listed on the London Stock Exchange. Like St. James’s Place, their approach is governed by a commitment to personal client service of the highest quality. They also have a wealth of experience in pension administration.

The Close Guernsey Personal Retirement Plan The Close Guernsey Personal Retirement Plan (CGPRP), a Retirement Annuity Trust Scheme (RATS) written under Guernsey legislation, and shares many similarities with a multi member personal pension scheme (see Appendix 2 for further details). The Scheme has been recognised by HMRC as meeting the standards and conditions required for QROPS approval. The Scheme is also ‘approved’ by the Guernsey Administrator of Income Tax which ensures that, where the member is non-resident in Guernsey, the fund may grow and benefits taken without deduction of Guernsey tax. Investment Options The CGPRP is not subject to tax on the fund and therefore it is important to select investments which benefit from gross roll up. The following investments may be held within the CGPRP: • SJPI International Trustee Bond (the default) • SJPI Fund Administration Bond • SJPI Cash Deposit Bond • SJP Unit Trusts UK pensions legislation means that it is not permissible to hold a Retirement Plan for Trustees within the CGPRP. Minimum Contribution Levels The CGPRP will typically only be appropriate where the combined transfer value exceeds £300,000. However, the size of the fund will ultimately be justified based on the costs of establishing and running the QROPS relative to the benefits derived. Eligibility Anyone over the age of 18 and under the age of 75 is eligible to join the CGPRP (subject to certain residency requirements). Where the applicant is currently UK resident, they will only be eligible to join the plan if they have a clear intention to become non-UK resident (typically within the next 12 months).




BRIEFING NOTE

Lifetime benefits A member can take benefits from age 50 (or 55 from 6 April 2010) and must take some form of benefit by age 75 at the latest. The CGPRP allows a lump sum of up to 25% of the transfer fund (net of any lump sums previously taken) to be paid to the member. On the payment of a lump sum from the CGPRP, income payments must commence within 12 months. Income benefits can be taken in a variety of ways:

• ‘Annuity’ (broadly similar to a unit linked annuity) • ‘Regular Drawdown’ (broadly similar to Unsecured/Alternatively Secured Pensions under UK

Registered Pension Schemes) • ‘Annuity Certain’ (broadly similar to Short term annuities under UK Registered Pension

Schemes) These are discussed further in Appendix 2. Death benefits On the member’s death, the remaining fund may be distributed to named beneficiaries, unlike most annuities, where any residual fund is lost. This may be achieved through a variety of ways: • Payment of full value to member’s estate within two years of death • Payment of a lump sum benefit to one or more named beneficiaries • Payment to a new plan for the provision of pension benefits to named beneficiaries While the member may nominate beneficiaries, any payment is made at the discretion of the trustees. Currency option Benefits may be taken in sterling, US dollars or Euro, although care must be taken when selecting the underlying funds so as to minimise the impact of exchange rate movements.




BRIEFING NOTE

Fees and Partner Remuneration The fees charged by Close will comprise an establishment fee (paid on establishment of the plan) and an ongoing annual responsibility fee (paid annually in arrears). These are as follows:

• Establishment fee £1,500

• Annual responsibility fee: 0.5%, subject to a minimum fee of £1,500 and a maximum of £5,000 per annum

In addition, where the Close carry out additional administrative tasks, these will be charged in accordance with the published fee schedule and will typically be taken at the time of the transaction. Partner remuneration One of the main reasons for introducing QROPS is to support core business opportunities and to help control the client relationship. In order to achieve this objective, it is important to ensure that the level of fees is highly competitive and kept to a minimum. The fees structure has therefore been designed to simply cover the costs of administering the plan. There will be no Partner remuneration from the QROPS ‘wrapper’ but you will, of course, benefit from the INT generated from the core products that underpin this plan.

Training and Accreditation To advise a client who has either left the UK permanently or is in the process of emigrating to transfer from a UK registered pension scheme to a QROPS you will need to hold the following relevant SJP accreditations:

• Certificate, Diploma and Advanced Diploma in Retirement Planning. • Certificate and Diploma in Savings and Investments • Fund Administration Bond (only required were the FAB is being recommended) • QROPS

Rather than issue a separate self-study workbook at this time, the QROPS accreditation exam will be based on the information contained in this entire briefing note. The accreditation exam itself will comprise 20 multi-choice questions and can be accessed via the online accreditation system available on the Intranet.




BRIEFING NOTE

Advice Process As some clients for whom QROPS will be appropriate will already be non-UK resident, particular care is required to ensure that you adhere to our guidance regarding overseas business in Partnership Notes 613. If you wish to discuss a particular situation, please contact Tax & Technical Support on (01285 8)78110. Full advice guidance is contained as Appendix 3.

Marketing Materials To support the launch, a range of marketing materials has been produced. These are available on the Intranet under ‘Library>Products>Pensions>QROPS’. These include: Close Guernsey Personal Retirement Plan

• Key Features and Benefits • Fee Schedule • Application Form • Benefits Form

International Trustee Bond

• Key Features • Application Form

Suitability Letter Templates

• Drawdown to QROPS transfers • Transfer and immediate vesting • Transfer only

Supporting documentation

• Advice Form • Client Identification and Address Verification Report • Seminar slides




BRIEFING NOTE

APPENDIX 1: Qualifying Recognised Overseas Pension Schemes – Technical Summary

BACKGROUND The procedures for overseas transfers have been simplified significantly following ‘A’ Day. As a result, provided the receiving overseas scheme is recognised by HM Revenue & Customs (HMRC) as a ‘Qualifying’ arrangement (which means that it needs to satisfy a number of specific scheme design and reporting requirements) it is possible to transfer from a UK Registered Pension Scheme (such as the St. James’s Place Personal Retirement Plan) to a Qualifying Recognised Overseas Pension Scheme (QROPS) without this being classified as an “unauthorised payment”, which means that it is not subject to Unauthorised Member Payment Charges or a Scheme Sanction Charge. This allows any individual with a UK Registered Pension Scheme who is already living outside of the UK or is in the process of leaving the UK permanently, to transfer their UK pension overseas without the deduction of UK tax. This includes both pensions yet to come into payment (uncrystallised arrangements) and those already in payment (crystallised arrangements) i.e. drawdown. REQUIREMENTS FOR QROPS ‘APPROVAL’ A QROPS is a pension scheme that meets the conditions of:

• an overseas pension scheme; and • a recognised overseas pension scheme.

Provided the scheme meets with these conditions, as summarised below, the scheme manager may apply to HMRC for approval. Overseas pension schemes As you would anticipate, for a scheme to be classed as an overseas pension scheme it cannot be a UK Registered Pension Scheme and must be established outside of the United Kingdom. The scheme may be an occupational scheme or personal pension scheme and must either be regulated by a local body established to regulate pensions or:

a) be established in a Member State of the European Union, or in Norway, Iceland or Liechtenstein.

or b) the scheme rules must provide that at least 70% of the member’s UK tax relieved pension

funds must be designated for the purpose of providing the member with an income for life and must be paid no earlier than normal minimum pension age (as applies to UK Registered Pensions Schemes), subject to the normal ill-health conditions.

Guernsey approved pension schemes meet the requirements of an overseas pension by satisfying condition b) as a minimum of 75% (i.e. more than the 70% required) of the fund must be used to provide the member with an income.




BRIEFING NOTE

In addition, overseas pension schemes must be recognised for tax purposes by the tax authorities in country in which it is established. To meet this requirement, the scheme must be open to local residents and the tax system in the country in which it is established must provide tax relief in relation to pensions. The scheme must also be approved / registered by the relevant tax authority as a pension or meet certain conditions in respect to the provision of income and normal minimum retirement age. Recognised Overseas Pension Schemes A recognised overseas pension scheme is an overseas pension scheme which meets one of the following conditions:

1. it is established in a Member State of the European Union, Norway, Liechtenstein or Iceland 2. it is established in a country with which the UK has a double taxation treaty covering the

exchange of information and non-discrimination provisions; 3. at the point of the transfer, the scheme provides that:

• 70% of the funds transferred must be designated to provide the member with an income for life,

• pension benefits are paid no earlier than normal minimum pension age (as apply to UK registered pensions), subject the normal ill health conditions.

• the scheme must be open to local residents. Guernsey approved pension schemes satisfy condition 3. APPLICATION FOR QROPS APPROVAL HMRC decides whether a scheme is a QROPS, based on information supplied by the overseas scheme itself. This includes:

• Confirmation that the scheme qualifies as an overseas pension scheme and a recognised pension scheme, together with supporting evidence if required

• Any other evidence requested by HMRC • An undertaking to notify HMRC if the scheme ceases to be a recognised overseas pension

scheme • An undertaking to provide HMRC with certain information on the making of payments in

respect of certain scheme members HMRC maintain a list of QROPS. The list is available on the HMRC website: http://www.hmrc.gov.uk/pensionschemes/qrops.pdf, This list is not exhaustive, as a number of administrators have not consented to have their details published. This list is updated twice a month. It is important to note that even if all the requirements are met, HMRC can refuse to treat an overseas scheme as a QROPS or can subsequently remove QROPS status from a scheme as happened to




BRIEFING NOTE

Singapore based QROPS in May 2008. An example of when it might do this would be where the scheme fails to provide all agreed information. Transfers made to a scheme after its QROPS status has been withdrawn will result in Unauthorised Payment Charges (and surcharge) on the member and a Scheme Sanction Charge on the administrator. It is therefore imperative to check the receiving scheme has QROPS status on the day of the transfer. DISCLOSURE OF INFORMATION TO HMRC As mentioned above, a QROPS must undertake to provide HMRC with information when they make a payment, including transfers, in respect of a member who has transferred pension rights from a UK Registered Pension Scheme. The information is as follows:

• The name and address of the relevant member • The date, amount and nature of the payment.

However, crucially, if the QROPS scheme member:

• Is not resident in the UK when the benefit payment is made and • Has not been resident in the UK earlier in the tax year in which the payment is made, or in any

of the five tax years immediately preceding that tax year the QROPS scheme administrator does NOT have to notify HMRC of a payment, although the scheme continues to be subject to the legislation which applies in the country in which it is established.

TAX IMPLICATIONS OF TRANSFERRING TO A QROPS The transfer payment itself will have no affect on the annual allowance, as it will not be regarded as a contribution. In addition, there is no limit to the size of funds that may be accumulated within a QROPS. Unlike a recognised transfer between two UK registered pension schemes, a transfer from a UK scheme to a QROPS is a Benefit Crystallisation Event (BCE8). This means that when benefits are transferred a Lifetime Allowance test is conducted to enable HMRC to claw back the relief on any excess amount from which the member has benefited, both on the initial contributions and whilst the funds have been invested. Therefore, if the fund transferred to QROPS is over the applicable Lifetime Allowance, a Lifetime Allowance Charge will be levied. However, because the payment is to a trustee, as opposed to an individual, the rate charged is 25%, not 55%. HMRC apply the test at the point of transfer, to prevent excess benefits being taken, as there is no requirement for the Lifetime Allowance test when benefits are taken under a QROPS.




BRIEFING NOTE

TRANSITIONAL PROTECTION Neither Primary nor Enhanced Protection is lost if benefits are transferred to the Close Guernsey Personal Retirement Plan (as it is a QROPS), but would be lost on transfer to an overseas pension scheme that is not a QROPS. TAXATION OF LIFETIME BENEFITS Where the member has been non UK resident for five complete tax years, the taxation of benefits taken by the member during their lifetime will be determined by the system of taxation in the member’s country of residence and that of the scheme. UK taxation will not apply. In contrast, any benefit payments made to a member who is UK resident or who has been UK resident in the five preceding tax years, which are not paid in accordance with UK requirements, will be regarded as an unauthorised member payment and as such will be subject to a tax of 40%. In addition, where the level of unauthorised payments made to, or in respect of, a member in a 12-month period is 25% or more of the value of the member’s benefits under the scheme, a surcharge of 15% will be charged. Payments made in accordance with UK requirements will be taxed as an overseas pension and will need to be declared in the ‘Foreign’ pages of the self assessment tax return. TAX TREATMENT OF DEATH BENEFITS Where the member dies prior to vesting, consistent with a UK Registered Pension Scheme, 100% of the fund is available for distribution to the nominated beneficiaries. Where the member has vested their benefits, the tax treatment will depend on their age and, in certain situations, where they are resident. This is summarised in the table below

UK resident Non UK resident* Prior to age 75 100% of fund value, although tax may apply in country of residence.

This represents a saving of 35% over a UK Registered Pension Scheme.

Post age 75 45% of the fund value, although tax may apply in country of residence. This represents a potential tax saving of 27%.

100% of fund value, although tax may apply in country of residence. This represents a potential tax saving of 82%

* The member has not been resident in the UK in the current tax year or any of the previous five tax

years




BRIEFING NOTE

APPENDIX 2: Guernsey Pensions - Technical Summary BACKGROUND Like the UK, Guernsey legislation permits a range of occupational and personal pension arrangements. These are divided into two distinct categories:

• Approved Pensions - The term ‘Approved Pensions’ describes pension schemes that have been approved by The Guernsey Administrator of Income Tax and comply with their Code of Practice. These, while principally developed for local residents, are also available to non-Guernsey residents. While contributions made by local residents are subject to certain limits and are eligible for tax relief, these do not apply to non-Guernsey resident members.

• International Pensions - In contrast, as the name suggests, International Pensions have

specifically been developed for non-Guernsey resident members. These arrangements are not approved by The Guernsey Administrator of Income Tax and can therefore be more flexible in the benefits that they provide.

As explained in Appendix 1, in order for a scheme to be eligible for QROPS status it must meet certain conditions. As a result, only Guernsey approved pensions which permit both Guernsey resident and non-Guernsey resident members can be a QROPS. RETIREMENT ANNUITY TRUST SCHEMES A Retirement Annuity Trust Scheme (RATS) is a Guernsey approved personal pension. Contributions Contributions made by Guernsey resident members are subject to certain limits and benefit from tax relief. These do not apply to non-Guernsey residents. Lifetime benefits While lifetime benefits paid to a Guernsey resident may be subject to income tax locally, non-residents can receive payments gross. These benefits may, however, be subject to tax in the members country of residence and, where benefits are paid within five complete tax years of the member leaving the UK, UK taxes may apply in accordance with HMRC regulations (see Appendix 1).




BRIEFING NOTE

• Lump sums

A single lump sum payment is available on the member attaining their selected retirement age. This is ‘tax free’ provided the payment does not exceed 25% of the value of the plan. Where a lump sum has already been taken prior to transfer, no further lump sums may be taken (even where the amount taken is below the 25% permitted). Having taken a lump sum from a Guernsey approved pension, regular payments must commence within one year. The requirement to take an income within 12 months does not apply where the lump sum is taken prior to being transferred to a Guernsey scheme.

• Income options

Like many other forms of personal pensions, members of a RATS are not required to purchase a traditional annuity, irrespective of their age. This provides for significant flexibility and also enables any remaining fund to be passed to the nominated beneficiaries.

Benefits may be taken as follows: Regular Drawdown As you might expect, Regular Drawdown shares many similarities with Income Drawdown for a UK Registered Pension Scheme. There are however a number of key differences:

• Under Guernsey legislation, whilst the maximum income level of 120% of the GAD rate remains in place, some income must be taken from the RATS. The range of income withdrawals therefore falls between 5% of the GAD rate (minimum) and 120% of the GAD rate (maximum).

• If, from age 75 onwards, the member has not been resident outside the UK for five full tax years, the maximum income that may be taken is 90% of that which could be generated by purchasing an annuity at age 75 and the minimum level income that can be drawn is 55% of the relevant annuity.

The Trustee and Plan Administrator will review the level of benefits using UK GAD tables every five years to ensure that payments remain within the 120% limit and, if appropriate the payments will be adjusted accordingly. Regular drawdown that is paid in excess of 100%, (but subject to the maximum of 120%), of the UK GAD rates will be paid at the discretion of the Trustee and Plan Administrator, who is responsible for ensuring that the Member is provided with an income for life.




BRIEFING NOTE

Annuity

This is not a guaranteed annuity and is similar to a unit linked annuity under a UK Registered Pension Scheme. It provides a regular payment from the plan for life, or until the plan’s assets are exhausted. The annuity will be calculated at a Selected Benefit Date with reference to the UK GAD tables. This means that while the level of income from a UK lifetime annuity is guaranteed to never drop, the annuity provided by the plan will be subject to revision every five years by the Trustee and Plan Administrator and payments may be adjusted accordingly. If a member takes benefits via an Annuity, they cannot subsequently change to an Annuity Certain or Regular Drawdown.

Annuity Certain

This is a regular payment from the plan for a defined period and for a defined amount. The term will be greater than three years and less than ten, and is paid regardless of whether the member dies during this period. The annuity certain will be calculated when selected with reference to the UK GAD tables. When an Annuity Certain concludes at the end of the stated term, the member may elect to take another Annuity Certain (the income level from which will depend on the fund value and prevailing GAD rate), an Annuity or a Regular Drawdown. Where an Annuity Certain is selected, the amount of income that will be paid during the defined period will be held on deposit in the Scheme bank account. Death benefits On the death of a member, a lump sum equal to value of the member’s plan will paid in accordance to the following provisions:

• Payment in full to the members estate within two years of their death or

• Payment to one or more named beneficiary(ies). While the member is not entitled to provide specific instructions, they are able to provide a written nomination detailing the person(s) they wish to be considered

or • Payment to a new plan or plans for the provision of pensions benefits to a named

beneficiary(ies) Where a member dies leaving no surviving named beneficiaries, the balance of the plan will be paid to the members estate.




BRIEFING NOTE

Code of Practice Following the removal of QROPS status from all schemes based in Singapore, the Guernsey authorities, in conjunction with the islands QROPS providers, have worked closely with HMRC to develop a Code of Practice to which all ‘approved’ pensions will, going forward, need to comply. These measures were taken to ensure Guernsey position as a leading provider of QROPS, while significantly reducing the potential for QROPS status being removed from any Guernsey scheme. The Code of Practice covers a broad cross section of activities, including:

• The role and responsibilities of the trustees and plan administrators • The payment of benefits • Viability and investments • Transfers out • Reporting obligations.

The key elements are as follows:

• Where a scheme is approved, or seeks approval, and is able to admit both Guernsey and non-Guernsey resident members, the same rules must apply to both classes of member. This has the effect of ensuring that, for non-Guernsey resident members, any lump sum is restricted to 25% of the fund.

• In the event of a transfer-out by a non-Guernsey resident member of funds which originated

from a UK Registered Pension Scheme, the receiving scheme must either have QROPS status or offer benefits which are no more generous than those permitted under Guernsey legislation.

These measures are specifically designed to prevent members from taking 100% of their fund as a lump sum, an area of planning of which HMRC are known to disapprove.




BRIEFING NOTE

APPENDIX 3: Advice Guidance & Flowchart 1 FACTORS INFLUENCING A DECISION TO TRANSFER TO A QROPS The table below sets out the key factors involved which will form the context for the subsequent steps:

Key considerations Residency Is client currently non-resident or are they on the point of

becoming permanently non-resident (eg currently in the process of emigrating)? It will not be appropriate to recommend a transfer to a QROPS if the client merely has the intention of emigrating at some yet to be determined time in the future or if they intend to return to the UK at some point. Partners can only advise clients currently resident in the UK (or Spain for suitably accredited Partners). For more information, please refer to Partnership Notes 613. In addition, the country where the client is, or intends to become, resident will also influence whether QROPS is appropriate.

When will benefits be taken There is currently no significant advantage in transferring to QROPS earlier than is necessary (ie shortly before when benefits are expected to be taken) and potentially a disadvantage due to the higher charges via the QROPS route. We would normally expect the client to be intending to take benefits within a year. See also the guidance in section 5.

Reason for replacement

• Why is it appropriate to transfer to a QROPS at this time?

• Why is the original policy no longer suitable? • What has changed in the client’s circumstances,

especially if the policy was taken out recently? Existing pension provision • Under what legislation was the plan originally written

– Occupational, Personal, S226? • Do they comprise non-protected and/or protected

rights?




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Key considerations Costs • What costs will be incurred by replacing the policy?

• Can they be mitigated? • Ongoing charges of the old and new policies • Do the tax advantages of the QROPS outweigh the

additional costs? Features lost Why is it appropriate to give up any of the following

benefits? - Additional life cover/ waiver - Guaranteed Bonus rates - Higher level of tax free cash - Guaranteed Annuity Rates

Alternatives The Suitability Letter will need to cover the following

alternatives in detail, together with the client’s reasons for rejecting them: • Leave pension in place until point that client wants to

take benefits • Transfer to RP/SHP until point that client wants to

take benefits 2. WHEN IS A QROPS APPROPRIATE? Client needs Where a client is, or within the next 12 months intends to become, permanently non-UK resident, there are a number of significant advantages that could be achieved by arranging the transfer of their UK Registered Pension Scheme(s) to a QROPS, including:

• Where a client is non-UK resident, there is no automatic right for pensions from UK Registered Pension Schemes to be paid gross. Liability depends entirely on the double taxation agreement, if one exists, between the UK and the country in which the client is resident. Benefits from Guernsey pension schemes can be paid gross to all non-Guernsey residents, so clients can potentially benefit from any preferential tax treatment in their country of residence.

• Benefits after age 75 can be paid at a higher level than under a UK Registered Pension Scheme

providing the client has been non-UK resident for five or more tax years.

• The minimum income level after age 75 is 5% of the comparable annuity rather than 55% of the GAD rate.

• On death before age 75, any crystallised element of a UK Registered Pension Scheme will be

subject to a 35% tax charge. This charge does not apply under Guernsey pension legislation.




BRIEFING NOTE

• On death after age 75, any remaining funds in a UK Registered Pension Scheme cannot be distributed without incurring Unauthorised Payments Charges, totalling 70%, and the excess will be subject to IHT meaning that the overall tax liability can be as high as 82%. No such restriction applies under Guernsey legislation, so providing the client has been non-UK resident for five or more tax years by the time they die after age 75, any unused assets may be paid to named beneficiaries (which may include a trust) without these UK tax charges applying. QROPS are not deemed to be ‘relevant property’ and so are not subject to UK IHT. Tax may arise in the client’s new country of residence.

• Investments within and benefits from a QROPS can be paid in a foreign currency (£, € and

US$), enabling members to better match the currency of benefit to that of their expenditure, so reducing the effect of currency fluctuations.

While a QROPS has obvious advantages, it is important to consider the way in which benefits will be taken as part of the consideration for recommending the QROPS to begin with. As a result consideration should be given to the way in which benefits, both lump sum and income, are structured under the Close Guernsey Personal Retirement Plan (CGPRP) to ensure that the benefits the client hopes to achieve on transfer can be provided by the scheme. For example, although one of the forms of benefits under the CGPRP is ‘annuity’, the way in which this operates in practice is very different to a UK pension annuity as the client’s fund remains invested and the level of income is reviewed every five years. Although the Trustees obtain actuarial advice at outset that is designed to ensure that the level of income is sustainable and that it is payable for life, it is possible that the level of income may fall at review time as the value of the fund may not be sufficient to maintain the income at its current level.

If the client wants a guaranteed income and is not prepared to accept the possibility of a reduction in pension income in future, transferring to a QROPS is unlikely to be appropriate as the benefits that are eventually payable cannot provide this certainty. More detailed consideration of this is provided in sections that follow.




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Residency We do not believe that it will be appropriate to recommend a transfer to a QROPS unless the client is either currently non-resident or is on the point of becoming permanently non-resident (eg is currently in the process of emigrating). Where your client is in the process of emigrating, it will be necessary to establish that your client:

• Will be leaving the UK in the next 12 months; • Has already arranged accommodation in the country to which they are moving, or are in the

process of doing so; and • Intends to remain outside the UK for a settled purpose eg retirement or employment.

Partners can only advise clients resident in the UK (or Spain for suitably accredited Partners). For more information, please refer to Partnership Notes 613. Your discussion with your client concerning their residency will need to be documented in your Suitability Letter. For example:

You are currently living in [name of country] and have been non-UK resident for [x] years Or

You are in the process of [emigrating/returning] to [name of country], although you are currently UK resident.

As part of your recommendation you will also need to consider the tax treatment that applies in the country in which the client is living/proposes to live. This is a key part of the advice process as this can ultimately determine whether the transfer is in the client’s best interests. We are not in a position to investigate the tax position of every country. However, we have investigated the tax and legislative implications of transferring to, and taking benefits from, the Close Guernsey Personal Retirement Plan in a limited number of countries. The results of these investigations and the implications for advice you can give are outlined here. 2.1 Those countries where QROPS are not, or are unlikely to be, appropriate Jersey Guernsey legislation prevents Jersey residents from becoming a member of a Guernsey approved pension scheme. US Citizens or residents It is not appropriate for US citizens or residents to transfer from a UK Registered Pension Scheme to a QROPS as Guernsey is not covered by the US/UK Pensions Convention. This would produce adverse




BRIEFING NOTE

tax consequences in the hands of a US citizen whether or not resident in the US. As a result, US citizens or residents are not eligible to join the plan. Australia The majority of clients intending to emigrate to Australia would be better advised to transfer their UK pension arrangements to an Australian superannuation arrangement. While there are exceptions for large transfers, any other action would bring the QROPS within the Australian Foreign Investment Fund regime, a form of anti-avoidance legislation which would broadly see funds assessed on an annual basis, compared to a considerably more favourable regime if placed within Australian superannuation arrangements. Canada Canadian resident or nationals are not eligible to join the Close Guernsey Personal Retirement Plan. South Africa In its current form, the Close Guernsey Personal Retirement Plan would not be classed as an Approved South African Pension Plan, and as such would be treated as a Non-Resident Trust. This means that the client would have all income and gains of the Trust being assessed to South African tax as they arise, rather than when they are distributed, whether or not, received by the client.

Should you believe that significant opportunities exist for business with South African residents that would warrant gaining the necessary approval from the South African tax authorities, then you should discuss the matter further with Tony Müdd, Divisional Director Tax & Technical Support. The number of countries within this category may increase as our knowledge of other countries’ pension systems increase and as other countries’ pension laws change in either their sophistication or, based on experience, to protect their local financial services industries. It will always be appropriate, therefore, to check with Pensions Marketing or Tax & Technical Support. Pensions Helpdesk: (01285 8)78270 [email protected], Tax and Technical Support Helpdesk: (01285 8)78110, email [email protected] 2.2 Those countries where QROPS may, based upon advice we have received and client

circumstances, be appropriate. Presently, this is a very limited number of countries and has been initially based on those jurisdictions where we have an interest or presence; Spain and Monaco. A more detailed breakdown of the tax and legislative issues for individuals considering transferring their UK pensions to a QROPS for these countries are contained in Schedules 1 & 2 of this appendix. As we develop our knowledge in this market and foreign jurisdictions where QROPS may be of benefit, we will add jurisdictions to this category.




BRIEFING NOTE

2.3 Those countries where clients will have to seek their own tax advice By definition every country/jurisdiction not explicitly referred to in the two categories above will fall within this final category. As outlined below, it is not sufficient simply to analyse and compare the difference and benefits of moving from a UK Registered Pension Scheme to a QROPS, when the benefits of a QROPS will largely depend upon the way in which benefits can be taken in the client’s new jurisdiction and the impact of taxation in the new jurisdiction. Therefore in order for a QROPS sale to be permitted to an individual who is moving to a country that would fall within this category, not only must the advice be provided before they leave the UK, the client must take their own independent tax advice from an individual who it is reasonable to expect is capable of providing such advice, (ie local solicitor, accountant, or qualified pensions professional) and that we receive a copy of such advice or verification from the client that such advice has been obtained. There may be some situations where this process may be unnecessary, for example where:

- the individual’s intended new country of residence is itself a tax haven - we have some knowledge of the country and/or are able to make a referral to an

appropriate party through whom advice can be sought, or - the opportunity for multiple business opportunities in a particular country dictates that it

may be viable for us to consider an alternative approach. and you should contact the Tax and Technical Support Helpdesk (01285 8)78110 or by emailing [email protected]) if you believe any of the above circumstances apply. In the particular case of New Zealand (a popular destination), there are no adverse tax consequences on taking benefits from a QROPS if the client is resident in New Zealand. However, the New Zealand tax position is complex and where you have a client who will be becoming New Zealand resident you should contact the Tax and Technical Support Helpdesk (01285 8)78110 or by emailing [email protected] for more details. 3.0 CONSIDERATIONS WHEN RECOMMENDING A TRANSFER TO A QROPS It is important to acknowledge that the transfer of a UK Registered Pension to a QROPS is not a universal solution for all clients who are, or will shortly become, non-UK resident. Whether a QROPS is appropriate will largely depend on whether the benefits received from a QROPS after charges and tax will be greater than those which could have been provided by their existing scheme. In most cases, this will be determined by the relevant differences in charges and either the tax treatment that applies or how benefits can be drawn.




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When considering whether a transfer to a QROPS is appropriate, you need to consider, the law and tax that apply:

• in the UK to Registered Pension Schemes (see section 3.1) and • in the country of residence (see section 2 above).

3.1 Implications from a UK perspective: Lifetime Allowance

When recommending a QROPS, consideration must be given to the impact of the Lifetime Allowance as, unless the client has elected for Enhanced or Primary Protection, any amount over the relevant Lifetime Allowance will be subject to a Lifetime Allowance charge of 25%. This will be deducted from the amount transferred. Where a Lifetime Allowance charge will be incurred, this must be discussed with the client and documented in your suitability letter. Tax free cash sums If the tax free cash sum from the transferring scheme is more than 25% of the fund value, consideration will need to be given to the reduction in the lump sum payable following the transfer and the implications explained to the client. It may be more appropriate to take maximum benefits from the UK Registered Pension Scheme and then effect a ‘Drawdown to QROPS’ transfer. This action would also be appropriate where only part of the fund has been crystallised as, once the fund has been transferred to a QROPS, no further lump sums can be taken. Alternatively, it may be more appropriate to simply transfer the proportion of the fund that has been crystallised. It is important to note that partial transfers of crystallised benefits will be treated as Unauthorised Payments and will therefore be inappropriate. Equally, where the client wishes to take their tax free cash immediately, but does not need to take an income for at least twelve months, it may be more appropriate to take the lump sum prior to transfer. Taking benefits within five complete tax years of becoming non-resident Even though a client may not be UK resident when they take benefits, there may be still be UK tax considerations. Where a ‘transfer member’ (an individual who transfers from a UK Registered Pension Scheme to a QROPS) is either:

• tax resident in the UK at the time benefits are taken (or are treated as taken) or • although not currently tax resident in the UK, has been resident in the UK earlier in the tax

year in which benefits are taken (or are treated as taken), or in any of the five tax years immediately preceding that tax year




BRIEFING NOTE

the benefits received from the transfers would incur the ‘member payments charges’ if those payments would have incurred the charges within a UK Pension Scheme. In most cases the relevant ‘member payments charges’ will be the Unauthorised Payments Charge (40%) and the Unauthorised Payments Surcharge (15%). 3.2 Implications if the member returns to the UK If the member returns to the UK and becomes UK resident, it is possible to leave benefits within the QROPS, but the tax treatment of benefits will be as outlined in the ‘Taking benefits within five complete tax years of becoming non-resident’ section immediately above. This means that benefits that exceed the levels permitted under UK legislation will incur 55% tax charges. In addition, any income received would need to be declared by the client on their self assessment tax return as overseas pensions income. While it is possible to transfer from a QROPS to a UK Registered Pension Scheme, whether this is appropriate will depend on the client’s individual circumstances. 4 Investments once the QROPS is established Like a UK Registered Pension Scheme, investments within a QROPS benefit from gross roll up, except for any withholding taxes that cannot be reclaimed. Although benefits from the Close Guernsey Personal Retirement Plan are payable gross, the member will still need to declare receipt of any benefits in their country of residence. Selecting an appropriate investment As the Close Guernsey Personal Retirement Plan is not subject to tax on the fund, it is important to select investments that benefit from gross roll up. St. James’s Place pension funds are deemed to be ‘UK pension business’ which means that they cannot be held by a QROPS. As a result, the only investments available to St. James’s Partners are:

• SJPI International Trustee Bond • SJPI Fund Administration Bond • SJPI Cash Deposit Bond • SJP Unit Trusts.

The default investment vehicle will be the International Trustee Bond as this offers funds denominated in a choice of currencies (£, € and US$), accumulates any income within the fund and permits regular withdrawals. There may, however, be client specific investment reasons why the alternative investment is more appropriate and this should be reflected in your Suitability Letter. The funds selected within the chosen product should be consistent with the client’s stated ATR. All transfer values will initially be applied to a client specific bank account with Close Bank before investment. Where benefits are to be taken immediately, tax free cash will be retained here before distribution, together with any drawdown income (if it is being taken at a frequency other than annual).




BRIEFING NOTE

As the QROPS is not a UK arrangement, neither it nor the underlying product is covered by the UK Financial Services Compensation Scheme. You should also note that there is currently no equivalent to the Financial Services Compensation Scheme in Guernsey so, in the unlikely event that Close Bank became insolvent, deposits will not be recoverable. Consideration should be given to taking income annually in advance and investing it in the client’s own bank account from where income can be taken at the required intervals if this offers the client greater security. 5 TAKING BENEFITS NB: Although you can continue to provide information about the contract, for cases which are not ‘immediate vesting’ or transfers of benefits already in payment, at the time that the client wants to take benefits you cannot advise them if they are now resident in an overseas territory (see Partnership Notes 613 for more information). To prevent this creating a problem in the future, your Suitability Letter will need to give some consideration to the way in which benefits will be taken in the future. As you will not be permitted to give advice when your client wants to take benefits (unless in Spain as an appropriately accredited Partner), you only can provide information. You will need to explain in your Suitability Letter that, once they have become non-UK resident, the client will need to obtain this from a professional adviser (eg lawyer or accountant) in their country of residence. 5.1 Factors influencing a recommendation When making a recommendation that a client should take benefits, consideration needs to be given to the following factors. Key considerations The client’s need for income and capital

• How much income and capital does the client require? • When is it required? • Is the income needed for a specific period? • Is an increasing or a level income required? • Is it envisaged that the income required will vary? If

so, when and by how much? • Is the income required to provide for essential or

discretionary expenditure?




BRIEFING NOTE

Key considerations

Client circumstances • What other assets and investments does the client hold? • Can they be accessed to provide income and/or capital

now or in the future? • Are there any advantages/disadvantages in doing this? • Will the client continue to have earnings from

employment or self-employment during retirement, if so, do they intend to work part-time or full-time?

• Are there significant events expected in the future which will impact on the client’s needs eg a mortgage repayment, claiming the state pension, maturity of a life assurance policy or the costs of long-term care?

• If so, how will they affect the client’s needs? Affordability • Does the client have other sources of income – eg from

investments or rental properties? • Does the client have guaranteed pension benefits

available – eg state pension or DB schemes? • Are there any other financial resources the client can

rely on – eg does the spouse have pensions that can be taken into account in planning the finances of the couple as a whole?

Age and state of health • How old is the client and their spouse? • Are they currently in good health? • Have they suffered an illness that will impact on their

ability to obtain insurance? • Does the client have full mental capacity? If not, has an

enduring / lasting power of attorney been arranged and registered to enable someone else to deal with their affairs?

Attitude to risk • Would the client be prepared to accept a reduction in pension income in future?

• Is their attitude to risk consistent with their other assets and circumstances?

Flexibility • Does the client require flexibility with their pension benefits? If so, how and why?

• Does the client want to have the ability to increase their income in the future should they need to do so?




BRIEFING NOTE

Key considerations

For immediate vesting cases • Can the client take benefits directly from their existing policies at this time? If not, when are they available?

• What are the death benefits pre and post retirement from the existing policies?

• What options are available under the existing policies, for example phasing/income drawdown facilities?

• What levels of tax free cash are available? • Are there advantages in taking benefits directly from the

existing arrangement or are levels higher on transfer to another registered pension scheme?

• What existing provisions do the spouse/dependants/beneficiaries have, should the client pre-decease them?

5.2 Level of benefits The Trustees of the CGPRP are aware that HMRC can remove QROPS status from a Scheme (as has happened in Singapore). We agree with their belief that it is important that the spirit as well as the letter of the law is abided by and that it is in the best interests of the client for them to refuse to permit benefits to be paid that exceed the allowable amounts. Although the CGPRP is a QROPS, it is important to remember that it is also a Guernsey RATS and that the benefits payable must therefore conform to the legislation that applies to RATS. The limits imposed by RATS are similar, but not identical, to those available under UK Registered Pension Schemes. It is a requirement of becoming a QROPS that the scheme administrators inform HMRC where payments are made to members where they have been non-UK resident for less than five complete tax years. This means that extra care should be taken where a client is UK resident at the time the payment is made, was UK resident earlier during the tax year in which the payment is made or was UK resident at any time during the five previous tax years as benefits that exceed the precise UK limits will be treated as Unauthorised Payments and subject to between 40% and 55% tax (depending on the extent to which the UK limits are exceeded).




BRIEFING NOTE

5.3 Form of benefits As explained in Appendix 2, it is possible to take benefits from the CGPRP in three ways:

• ‘Annuity’ (NB: this is not like a guaranteed annuity from a UK Registered Pension Scheme as the income is NOT guaranteed to remain at the initial level for life. Instead it is much closer to a unit liked annuity or to a Scheme Pension from a money purchase UK Registered Pension Scheme)

• ‘Regular Drawdown’ (broadly similar to Unsecured/Alternatively Secured Pensions under UK Registered Pension Schemes)

• ‘Annuity Certain’ (broadly similar to Short term annuities under UK Registered Pension Schemes)

A guaranteed annuity cannot be provided from the CGPRP. Consideration should be given to all three methods when taking income as there may be specific tax reasons why it is more advantageous to take benefits by one method rather than another eg some countries tax ‘annuity’ payments in a different way to ‘drawdown’ payments which may mean that less tax is paid if income is taken via the annuity route. You should refer to the separate analysis of those countries whose tax position we have investigated. NB: It is possible to move from ‘Annuity Certain’ to ‘Regular Drawdown’ or ‘Annuity’ at the end of its stated term and it is possible to move from ‘Regular Drawdown’ to ‘Annuity Certain’ or ‘Annuity’ at any time, but a member CANNOT move from ‘Annuity’ to either ‘Regular Drawdown’ or ‘Annuity Certain’. Where ‘Regular Drawdown’ is selected, the considerations that need to be taken into account when advising a client to take benefits are not dissimilar to those that would apply if taking drawdown from a UK Registered Pension Scheme. Your Suitability Letter should include the risk factors involved in entering into drawdown ie:

• the capital value of the fund may be eroded • high levels of income may not be sustainable.




BRIEFING NOTE

The following table summarises the differences between ‘Regular Drawdown’ under Guernsey legislation and Unsecured / Alternatively Secured Pensions under UK legislation.

UK Registered Pension

Scheme Close Guernsey Personal

Retirement Plan Amount used to produce

income 75% of fund value 75% of fund value

Phased benefits Possible Not possible Maximum cash sum 25% of fund value 25% of fund value

Maximum income before age 75

120% of UK GAD rate 120% of UK GAD rate

Minimum income before age 75

Nil

5% of UK GAD rate. Income must start to be paid within

one year of the lump sum being paid*.

Maximum income after age 75

90% of UK GAD rate for 75 year old

If member has been UK resident within 5 preceding tax

years, 90% of UK GAD rate for 75 year old.

If member has NOT been UK

resident within 5 preceding tax years, actuarial calculation

based on age, gender and fund value, subject to a maximum of

120% of GAD.

Minimum income after age 75

55% of UK GAD rate for 75 year old

5% of UK GAD rate. Income must start to be paid within

one year of the lump sum being paid*.

Review of limits Every five years until age 75

and annually thereafter Every five years

* The requirement to take an income within one year only applies where the lump sum is taken from the CGPRP. Where there is a requirement to pay income at a frequency other than annually, irrespective of whether benefits are being taken by ‘Annuity’ or‘Regular Drawdown’, an amount equivalent to the anticipated annual amount will be encashed from an equal proportion of units in each fund of the chosen investment product at the start of the drawdown year and held in an interest bearing account on the member’s behalf. Income for the remainder of the year will be paid from this account. For ‘Annuity Certain’, an amount equal to the total income payable during the term will be segregated and will typically be held on deposit.




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6 Benefits on death Although advice about the options available on death is arguably only relevant at the point that the member dies, the difference between the treatment of death benefits under a UK Registered Pension and the CGPRP is one of the significant advantages gained by transferring to a QROPS so should be considered as part of the advice process. The following table summarises these differences:

UK Registered Pension

Scheme Close Guernsey Personal

Retirement Plan Cash sum available for

nominated beneficiaries on death before vesting

100% of fund value available for distribution to the nominated beneficiaries without deduction of UK taxes.

Payment of income

Available to member’s spouse or dependants (Dependant’s

Unsecured Pension or Dependant’s Unsecured Pension as appropriate)

Payment of ‘Annuity’, ‘Regular Drawdown’ or

‘Annuity Certain’ to spouse or nominated beneficiary(ies)

Cash sum available for nominated beneficiaries on

death after vesting but before age 75

65% of the fund available for distribution to the nominated beneficiaries as a 35% income

tax charge will apply.

100% of fund value available for distribution to the

nominated beneficiaries.


death after age 75 and, at time of death, the client was non-UK, nor at any point in the


100% of fund value available for distribution to the

nominated beneficiaries.


death after age 75 and, at time of death, the client was UK or had been at some point in the


18% of the fund available for distribution to the nominated beneficiaries as unauthorised

payment charges of 55% and a scheme sanction charge of 15%

will apply. The 30% remaining will suffer IHT at

40%

45% of the fund available for distribution to the nominated

beneficiaries as although unauthorised payment charges

of 55% will be payable, the scheme sanction charge and

IHT will be avoided NB. The above table simply compares the tax position in the UK. Further restrictions and implications for benefits payable on death may arise due to the relevant legislation in the client’s country of residence. Where no such restrictions apply, then upon transfer to QROPS the rules outlined above will be relevant, ie the new country’s rules cannot extend and improve the client’s position.




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7 TRANSFERS OUT Transferring from an existing QROPS to another QROPS is permitted at any time without any adverse tax implications. Where a transfer-out is made to a Scheme that is not a QROPS, then HMRC could well claim that the QROPS rules were being abused and remove its QROPS status. As a result transfers will only be permitted from the Close Guernsey Personal Retirement Plan where the receiving scheme has QROPS status or offers benefits which are no more generous than those permitted under Guernsey legislation




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SCHEDULE 1

QROPS – SPAIN

Introduction The following summarises the tax issues relevant when transferring UK Registered Pensions Schemes to the CGPRP arrangement for an individual who has, permanently left, or will be leaving, the UK and is / will be a tax resident of Spain. Issues upon transferring to a QROPS prior to establishing residence in Spain Provided the individual’s intention to move to Spain is clear and within the next twelve months, there are no issues, save those relating to the appropriate selection of a retirement age (see below). That is to say there are no differences from a Spanish tax perspective from the position in the UK Does the individual have the ability to transfer a UK pension into a local scheme? While it is possible for an individual to transfer their UK pension fund to a Spanish Qualified Pension Plan, it would not improve the tax position when compared to a transfer to a QROPS. What are the tax implications of funds invested in a QROPS prior to drawing benefits? The QROPS is deemed to be “an employment related pension plan” and not a “personal scheme for individual savings”. This is necessary to avoid the application of anti-avoidance provisions applicable to discretionary trust savings accounts located in tax haven jurisdictions such as, as far as Spain are concerned, Guernsey. An “employment related plan” needs to be directly or indirectly related to the employment of the member, but does include plans in which the individual has made contributions from employment or self-employment income and in which retirement is the main event that would trigger benefits. On this basis the QROPS will be a non-qualified employment related pension plan. Therefore, on the assumption that the member and beneficiaries do not have the right to receive benefits from a QROPS until the relevant events occur, (i.e. retirement and/or death), the member will not be subject to Spanish tax simply due to the existence of a QROPS. However, once the beneficiary reaches their Selected Benefit Date (on the QROPS application form and not earlier than age 50, the member could become immediately liable to tax in Spain, based on any increase in value during the particular tax year, regardless of whether benefits are received or not. It is essential, therefore, that the member selects a retirement age at which they will begin to take distributions. Selection of the benefit date on the QROPS application is the member’s decision and does not necessarily need to match the retirement age of the original scheme. Further, depending on the size of the fund it may also be advisable to have more than one QROPS with differing retirement ages in order to defer liability to Spanish tax on at least some of the QROPS funds where the individual was either unsure as to the point at which they wish to receive distributions, or wanted some flexibility. This may, however, have additional cost implications – establishment and annual trustee fees.




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Where a member or a beneficiary, after the member’s death, is entitled to benefits but decides not to draw them they, could be taxed on the value of the increase in the fund not drawn in the same way. Taxation of Income Benefits Benefits from a pension scheme (qualified or not) are treated for Spanish tax purposes as employment-related income and as such, “income”, whether drawn down or received as an annuity from a QROPS, is subject to Spanish Income Tax on the entire amount at the rates and levels set out in the table below.

Tax Rates effective for the Year 2009 Income to Tax Rate

€ % 0-17,707.20 24

17,707.20-33,007.20 33.87 33,007.20- 53,407.20 37 53,407.20 and above 43

Example: Total drawing from QROPS €25,000 (this being the member’s only income) - Tax liability €6,719.79. Restriction of Income Benefits There are no additional Spanish tax restrictions on income benefits to those that already exist within the QROPS legislation. Taxation of Lump Sum Benefits The withdrawal of a Lump Sum from the QROPS will be treated no differently from that of any other withdrawal, and as such will be fully assessable to Spanish Income Tax on the member as outlined above for Income Benefits. This is the same position as taking a lump sum from a UK Registered Pension Scheme. Where possible, it would be therefore be appropriate to take benefits before becoming resident in Spain and then effecting a ‘drawdown to QROPS’ transfer. It is important to note that partial transfers of crystallised benefits will be treated as Unauthorised Payments and will therefore be inappropriate. Wealth Tax Issues From the 1 January 2008, Wealth Tax was abolished in Spain, therefore there are no issues in relation to Spanish residence and QROPS. Spanish Estate Duty and Forced Heirship Issues Benefits from QROPS are not subject to the equivalent of Spanish Inheritance Tax and should also not be subject to Spanish forced heirship limitations or Spanish succession law in general, since this is only applicable to Spanish nationals.




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SCHEDULE 2

QROPS – MONACO Introduction The following summarises the tax issues relevant when transferring UK pensions to the Close Brothers QROPS arrangement for an individual who has permanently left the UK, or will be leaving soon, and is / will be a tax resident of Monaco. Issues transferring to a QROPS prior to establishing residence in Monaco Provided the individual’s intention to move to Monaco is clear, and within the next 12 months, there are no issues. Issues upon transferring to a QROPS once resident in Monaco None. Does the client have the ability to transfer a UK pension into a local scheme? This option is not available. Therefore the only option is to retain their UK pension, or arrange for a transfer to a QROPS. Does/should any action need to be taken prior to making a transfer to a QROPS? No action required that would have any beneficial impact. What are the tax implications of funds invested in a QROPS prior to drawing benefits? Where the fund benefits from gross roll up, subject to any reclaimable withholding tax, no liability to tax would arise on the individual prior to drawing any benefits. Taxation of income benefits Income benefits received from the QROPS are not subject to Monegasque tax. Restrictions of income benefits There are no additional Monegasque restrictions on income benefits to those that already exist within QROPS legislation. Taxation of lump sum benefits There is no Monegasque taxation on lump sum benefits taken from a QROPS.




BRIEFING NOTE

Restrictions on lump sum benefits There are no additional Monegasque restrictions on lump sum benefits to those that already exist within QROPS legislation. Implications of retaining funds in UK schemes If an individual only partially transfers his UK pension benefits to a QROPS, retaining some in the UK, this will have no impact on either how benefits are taken in Monaco, or the taxation thereof. Wealth Tax issues There is no Wealth Tax in Monaco. Succession/Forced Heirship issues Benefits will be payable according to the terms of the Trust at the discretion of the Trustees. A Letter of Wishes should always be advised. Liability to local Estate Duty There is no Estate Duty in Monaco. Other issues, practical or advice-led, of which you should be aware of None.




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APPENDIX 4 – Processes and Procedures

Business submission process:

Step One Case submitted to Business Assurance for approval using the blue folder process (cases cannot currently be submitted via Swift). If you wish to discuss a specific case prior to submission, please contact Business Assurance on 01285 878062

Step Two Once approved, the Partner presents their recommendation to the client

Step Three Client completes the following documents in full:

• QROPS application form • Discharge documents • Letter of wishes (if nomination not included in application

form)

They will also need to part complete the following: • SJP Application form (UT / ITB / FAB / CDB) – the client

should only complete the fund selection and amount to be invested. Where the International Trustee Bond is being recommended, the lives assured section and fund selection section should also be completed.

and forward to their Partner, together with suitable client ID (see later in this section for further guidance).

Step Four On receipt, Partner reviews the documentation to ensure it has been completed correctly.




BRIEFING NOTE

Step Five Assuming the documentation has been completed correctly, the

Partner completes the QROPS Advice Form (see Appendix 6) and forwards this, together with the following documentation, to their Office Administrator:

• QROPS Application Form • SJP Application form and corresponding Advice Form

(UT) or Sales Submission Form (ITB / FAB / CDB) • Confidential Financial Review • Approval Memo • Illustration (showing Close as the applicant on the SJP

product) • Discharge documents • Copy of suitability letter • Client Identification and Address Verification Report,

together with certified copies of documentation (see Appendix 5. NB: Where a PO Box is used as a correspondence address, the Address Verification Report must relate to the permanent residential address.

Step Six The Office Administrator checks that all the required documents are present and submits the case on SWIFT. The original documentation is then sent to Close at the following address:

Close Trustees Guernsey Limited PO Box 116 Trafalgar Court Admiral Park St Peter Port Guernsey GY1 3EZ

Step Seven On receipt of the case, Close will review the documentation to

ensure it is completed correctly. They will also review the Suitability Letter to ensure the recommendation is appropriate and complete the required anti-money laundering checks. If all is in order, the client is accepted as a member of the scheme and notification is sent to the client and their Partner

Step Eight Close contacts the ceding scheme administrator requesting the transfer of funds.




BRIEFING NOTE

Step Nine On receipt of the funds, Close completes the SJP Application

Form and passes the following documentation direct to the appropriate Administration Centre:

• Completed SJP Application Form • Confirmation of the telegraphic transfer • Copy of Advice Form (UT) or Sales Submission Form

(ITB / FAB / CDB) They will also send a ‘welcome’ pack to the client once the plan has been issued. Please note, client ID for Close is not required as this is maintained centrally.

Step Ten On receipt of the case, the Administration Centre will enter the case on the system and allocate a plan number. The plan will then proceed to issue in the usual way.




BRIEFING NOTE

Valuations and Client Reporting The client will receive an annual benefits statement, as at 31 December, detailing the valuation of the assets held in the plan. Additional ‘ad hoc’ valuations may be requested at any time, for which a charge of £150 will be payable. Client identification As CTG are regulated by the Guernsey Financial Services Commission, their requirements regarding client ID, verification of address and source of wealth are very different to those which apply in the UK. In particular, rather than using Experian, the rules require that a copy of the documentation used to verify identity and address must be taken and certified as a true copy of the original, in the format detailed below, by a responsible person. St. James’s Place Partners can act in this capacity.

Full details of the documents that can be used are contained in the Client Identification and Address Verification Report that must also be completed. A copy is contained as Appendix 5 Please note these must be obtained for each client at the time of application. Where the client utilise a post office box for their correspondence address, it is important to also include the address of the property at which the client permanently resides as it is these details that are used for anti money laundering purposes. The address on the documentation used to verify identity and address should also match the address that is quoted on the application form as their permanent residential address. In addition, following the death of the client, equivalent information will be required for each recipient beneficiary at the time of distribution.




BRIEFING NOTE

APPENDIX 5: Client Identification And Address Verification Report FOR USE ONLY WITH QROPS BUSINESS

NB. This document is required when introducing a client to Close Trustees Guernsey Limited Client Address Date of Birth Place of Birth Nationality

…………………………………. …………………………………. …………………………………. …………………………………. …………………………………. …………………………………. ………………………………….

Partner Office

…………………………………. ………………………………….

CLIENT IDENTIFICATION Please tick the evidence you have obtained and attach a certified copy of the document: Valid passport Valid photocard driving licence (full or provisional) National identity card (non-UK national) Identity card issued by Electoral Office of Northern Ireland Valid firearms certificate CURRENT RESIDENTIAL ADDRESS VERIFICATION (PO Box is not acceptable) Please provide original or a certified copy of one document from the list below. • Current* bank statement (not printed from the

internet) • Recent* utility bill (not printed from the internet

and not for a mobile phone) • Valid old style driving licence

* within 3 months

• Recent* evidence of entitlement to state or local authority-funded benefit (including housing benefit and council tax benefit), tax credit, pension, educational or other grant

• Instrument of a court appointment (such as a grant of probate)




BRIEFING NOTE

SOURCE OF WEALTH Please describe how the client has generated their overall net worth (e.g. business activities, occupation and earnings, inheritance) and provide details of the source of the funds for this particular investment (e.g. inheritance (state who), long-term savings, withdrawal / encashment from existing investment, sale of property). Partner Signature: …………………………………………… Date: ……………………………




BRIEFING NOTE

APPENDIX 6: QROPS ADVICE FORM

PARTNER NAME NUMBER: PARTNER CONTACT TELEPHONE PARTNER CODE : BUSINESS SOLD IN LOCATION – PLEASE TICK:

PLEASE LIST CEDING SCHEME(S) DETAILS:-

CLIENT NAME ………………………………. TOTAL VALUE OF ANTICIPATED TRANSFERS……… 1ST PLAN PROVIDER ………………………….. PLAN NUMBER …………………………………. 2ND PLAN PROVIDER ………………………….. PLAN NUMBER …………………………………. 3RD PLAN PROVIDER ………………………….. PLAN NUMBER …………………………………. 4TH PLAN PROVIDER ………………………….. PLAN NUMBER …………………………………. ROUTING OF OUTPUTS: PLEASE TICK

ORIGINAL DOCUMENTS TO: CLIENT OR TO PARTNER COPY DOCUMENTS TO: CLIENT OR TO PARTNER

SUBMISSION CHECKLIST:

The following items must be submitted to Close to establish the QROPS:

• QROPS Advice Form • QROPS Application Form • BAT Approval Memo • Illustration (showing Close as the applicant) • Discharge Documents • Copy of suitability letter • Client Identification & Address Verification

Report, together with certified copies of documentation

Partner to indicate which SJP product is being linked to the QROPs (the advice forms/sales submission form should accompany the application to Close). ITBQROPS UTQROPS CDB QROPS FAB QROPS NB: An illustration is required for the above products in the name of Close as trustees.

SIGNED & DATED BY OFFICE ADMIN

ADDITIONAL COMMENTS:

Send to: Close Trustees Guernsey Limited PO Box 116 Trafalgar Court Admiral Park St Peter Port Guernsey GY1 3EZ

IN LOCATION OUT OF LOCATION




BRIEFING NOTE

APPENDIX 7 – Questions & Answers Q Can regular contributions be made to the CGPRP?

A No, the plan has been specifically designed for transfer business.

Q How is the initial fee paid?

A This is deducted from the fund at outset. There is no need to pay this by cheque.

Q Does the £300,000 minimum apply to each transfer?

A No, the £300,000 may comprise a series of transfers funded from different schemes

Q Can clients invest in plans other than those offered by SJP?

A No, clients can only invest in the following:

• SJPI International Trustee Bond

• SJPI Fund Administration Bond

• SJPI Cash Deposit Bond

• SJP Unit Trusts

Q Is it possible to arrange an in specie transfer from the ceding scheme(s)?

No, the transfer must be by way of a cash transfer

Q Is it possible to arrange a partial transfer?

A Yes, provided the pension rights are uncrystallised.

Q Once the client has been non-UK resident for five complete tax years, can

they take their entire fund as a lump sum?

A While a small number of provider’s continue to purport that this is legitimate planning permitted by the legislation, this view is not shared by HMRC and they have taken action where they have identified abuse (for example the removal of QROPS status from all Singapore schemes). For this reason, St. James’s Place do not endorse this activity, and is it not permitted by the Close Guernsey Personal Retirement Plan.

Q Where my client is resident in Spain, do I need to recommend the Spanish International Investment Bond (SIIB)?




BRIEFING NOTE

A Although your client is Spanish resident, the investment is being made by Close Trustees who are resident in Guernsey. For this reason, an SIIB would not be appropriate.

Q Is it possible to transfer from another QROPS to the CGPRP?

A While QROPS to QROPS transfers are permitted by legislation, this type of business does carry an additional level of risk. We are working with Close to identify a robust process that will enable us to accept transfers from other QROPS. In the interim, if you require further guidance, please contact Pensions Marketing.

Q My client is long-term resident in Portugal, can I advise them to transfer

their SJP Drawdown Plan to the QROPS?

As your client would appear to be habitually resident in Portugal, you are not able to advise them. For further guidance, please refer to Partnership Notes 613.

Q My client is currently UK resident but is planning to move permanently to Bulgaria in six months time. Is it appropriate to recommend a QROPS and, if so, can I advise them?

A As the client is currently UK resident, you are able to provide them with advice before they leave. Before making any recommendation, your client will need to seek professional advice as to how a QROPS it taxed in Bulgaria and how this differs to a UK Registered Pension Scheme. Based on this advice, where a transfer to a QROPS would be advantageous, you should submit the case for pre-approval.

Q Can I phase benefits from the CGPRP?

No, it is not possible to phase benefits from the CGPRP.

Date post:	22-Nov-2014
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